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Exam 25: Taxation of International Transactions

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Question 21

True/False

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Freda was born and continues to live in Uruguay. She exports widgets to U.S. customers. The United States does not have in force an income tax treaty with Uruguay. Freda's net U.S. income from the widgets is subject to a flat 30% Federal income tax rate.

A) True
B) False

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Question 22

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Mitch, an NRA, sells a building in Omaha for $1 million. His basis in the building is zero for both regular tax and AMT purposes. Mitch has no other contact with the United States other than the ownership of the building. How much Federal income tax is due from Mitch on the sale?

A) $0, because Mitch is an NRA.
B) The amount realized times the top individual tax rate.
C) The net gain times the top capital gains tax rate.
D) The net gain taxed at the lesser of the applicable regular or AMT rates.

E) All of the above
F) A) and B)

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Question 23

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A tax haven often is:

The sourcing rules of Federal income taxation apply to deductions as well as to income items.

Which of the following statements regarding income sourcing is not correct?

Match the definition with the correct term. -Bilateral agreement between two countries related to tax issues.

In international corporate income taxation, what are the uses of the "sourcing rules" in computing Federal taxable income?

Which of the following statements best describes the primary purpose of the Subpart F income provisions?

Match the definition with the correct term. -Individual who is not a U.S. citizen or resident.

GlobalCo, a foreign corporation not engaged in a U.S. trade or business, receives $80,000 in interest income from deposits with the foreign branch of a U.S. bank. The U.S. bank earns 24% of its income from foreign sources. How much of GlobalCo's interest income is U.S. source?

Match the definition with the correct term. Not all of the terms have a match. A definition can be used more than once. -Owner of shares counted in determining whether a foreign corporation is a controlled foreign corporation.

ForCo, a foreign corporation, receives interest income of $50,000 from USCo, an unrelated domestic corporation. USCo historically has earned 79% of its gross income from active foreign-source business income. What amount of ForCo's interest income is U.S.-source?

USCo, a U.S. corporation, purchases inventory from distributors within the United States and resells this inventory to customers outside the United States, with title passing outside the United States. Profit on the sale is $10,000. What is the sourcing of the USCo's inventory sales income?

A U.S. business conducts international communications activities between the United States. and Spain. The resulting income is sourced 100% to the United States, the residence of the taxpayer.

Goolsbee, Inc., a U.S. corporation, generates U.S.-source and foreign-source gross income. Goolsbee's assets (tax basis) are as follows. $\begin{array}{lr}\text { Generating U.S.-source income } & \$ 15,000,000 \\\text { Generating foreign-source income } & 25,000,000 \\\text { Total } & \$ 40,000,000\end{array}$ Goolsbee incurs interest expense of $200,000. Apportion interest expense to foreign-source income.

The U.S. system for taxing income earned inside its borders by non-U.S. persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.

Hendricks Corporation, a domestic corporation, owns 40 percent of Shane Corporation and 55 percent of Ferrell Corporation, both foreign corporations. Ferrell owns the other 60 percent of Shane Corporation. Both Shane and Ferrell are CFCs.

Section 482 is used by the U.S. Treasury to:

Which of the following is not a U.S. person?

Discuss the primary purposes of income tax treaties.